Think what you will of President Trump’s chaotic-seeming tariff policies. The ostensible goal — the revitalization of US manufacturing — is of decisive importance for the success of the nation. Or put another way, America is unlikely to maintain global primacy with finance, services, and high-tech alone. All the capital, nice hotels, and mind-bending apps in the world can’t replace factories. While tariffs may prove a good start toward this goal, they are hardly sufficient.
Tariffs are hardly a MAGA invention, of course. On the contrary, the United States has levied protective tariffs almost from its origins as a nation. Tariffs and import substitution formed one of the central pillars of Alexander Hamilton’s political economy.
Today, Europe screams about Trumpian tariffs, but the Continent has been reluctant to lower its own historically high protective barriers, most of them based on non-tariff regulatory policies. Canada, too, has been very protectionist and for a long time. Now, after decades in which Washington put global integration over its own workers and industry, America is playing the same game.
The benefits of Trump’s tariffs will take time to become apparent. Already, they have spurred companies like Eli Lilly to recommit to domestic production, forced Honda to scrap plans for shifting production of new models to Mexico in favor of Indiana, and prompted chipmaker Taiwan Semiconductor and Samsung to build new plants in Arizona and Texas, respectively. Likewise, Nvidia, a company that long offshored its production to Taiwan, has committed to multibillion-dollar development projects.
Still, job recovery is gradual. US manufacturing revival has been a bipartisan goal, pursued in fits and starts, since the Great Recession. As the Reshoring Initiative notes, the country has managed to claw back approximately 1.7 million jobs in an effort to bring manufacturing to or nearer the US homeland. This could just be the beginning. By some estimates, as China rises up the value chain and production costs there increase, up to a third of all Chinese capacity will move away from the Middle Kingdom in the near future.
This shift gets an unintended boost from the increasingly hostile atmosphere in China, which confronts even big, established firms like the appliance giant Whirlpool, General Electric, Caterpillar, Goodyear, General Motors, and Polaris. Most recently, Chinese exports to America dropped to the lowest level since the pandemic, driving the trade deficit to $280 billion this year, down from $500 billion under President Joe Biden.
Yet the road from here is by no means easy. One key concern is that firms will merely shift production from China to other third countries. This would be a plus in terms of weakening Beijing as a rival, but only domestic production in key industries can guarantee US economic preeminence and, with it, US geopolitical primacy.
Like any trend that enriches some, reshoring faces strong opposition from those who benefit from the offshoring trend. You can start with the greens, whose anti-growth ideology and embrace of “net zero” are simply incompatible with industry-led economic growth. Their view boils down to letting the Chinese and their satraps do the dirty work, while America and the West purchase the products from the world’s No. 1 polluter.
Traditional liberals also find tariffs distasteful, as reflected in most of the business press: The Wall Street Journal, the Financial Times, The Economist, and the like. Most of their favorite pundits detest tariffs and focus on the ill effects on companies and consumers, while largely embracing the current trading regime, as long as financial markets thrive. Libertarians, especially, rail against the very idea of having national policies to encourage manufacturers.
Many mainstream Democrats naturally disdain industry, reflecting the prejudices of their party’s elite professional base. Factories, a Northwestern University economics professor claims, “aren’t the future,” and we can count on our service and tech economies to generate wealth. Christina Romer, who served as chairwoman of the Council of Economic Advisors under President Barack Obama, claimed concerns that building stuff was more important than getting haircuts reflected merely “sentiment and history,” not modern reality.
Then there’s the Democratic Party’s increasingly powerful socialist left — which along with many Silicon Valley oligarchs — prefer welfarism over growth and who have abandoned higher-wage jobs in energy, logistics, and manufacturing as a means to grow family incomes. Many embrace a universal basic income as a means to palliate a populace made redundant by globalization — in effect, offering handouts, porn, and weed to the jobless children of a once-proud working class.
Of course, China benefited the most from the status quo ante. Since its entry into the World Trade Organization in 2000, the People’s Republic has grown so much that it boasts as many factory exports as the United States, Japan, and Germany combined.
In contrast, between 2004 and 2017, US reliance on Chinese inputs doubled, a barrage that, notes an Economic Policy Institute study, cost as many as 3.7 million jobs since 2000. Europe’s industrial sector also declined, losing a million manufacturing jobs just between 2019 and 2023. Germany is projected to lose as many 400,000 auto jobs by 2030 through competition with Chinese EVs. Britain, once the world’s industrial leader, has lost 200,000 manufacturing jobs since 2010 and is now only the world’s 12th largest manufacturing power.
Mass deindustrialization’s effects are not hard to see. Just travel to northern England, the outer suburbs of Paris, the American Midwest, or Germany’s “Rust belt on the Rhine.” All these areas suffer reduced economic mobility, high degrees of welfare dependence, and mass out-migration. For millions, the loss of such jobs has meant that, as an MIT report put it, the traditional “job escalator” has shut down.
The digital revolution, and the creation of mega-companies in places like Silicon Valley has done little to make up the difference in terms of productivity or social mobility. Nor can services by themselves solve deep-seated social or trade woes. Overall US service exports, including those that go to tech firms, represents less than a third of the country’s overseas sales.
Needless to say, Chinese manufacturing supremacy under the former neoliberal regime also threatened to bring about Chinese defense and geopolitical supremacy.
But here, too, a reversal is underway, with new signs of life in the US defense industry. This comes not from the corporate dinosaurs, but a whole wave of new companies. “Innovation starts in the small shops,” notes the Dallas-based venture capitalist Bryan Chambers. Upstart “defense-tech” firms are feeding off a huge surge in investment, including the Army’s current $36 billion procurement overhaul.
Some of these companies, like Denver’s Palantir and Orange County-based Anduril have seized on a change in military affairs resulting from experiences with drone and missile attacks in Palestine, Yemen, Russia, and Ukraine. Equally important, we now see a shift among entrepreneurs toward “hard tech,” essentially AI-assisted hardware, as the best bets for the future.
Likely, the bulk of America’s reindustrialization won’t take place in blue areas like California, due to their high taxes, prohibitive regulations, and high housing prices. The fastest industrial GDP growth is taking place in Texas, Michigan, Florida, Kentucky, Tennessee, Arizona, Ohio, Minnesota, and North Dakota. These are also the states that, according to Supply Chain Digest, offer the best conditions for manufacturers.
If the industrial boom gains velocity, it could mark a massive reversal of fortune not only for the newly industrializing South, but especially for the Midwest, a region that, between 2000 and 2005, accounted for nearly 40 percent of all US industrial job losses.
Contributing to the production comeback is the renaissance of the US fossil-fuel industry, now producing at a record level. The Permian Basin in west Texas, which by itself is the world’s fifth largest producer of oil, and new production sites in places like Ohio and Pennsylvania provide a critical raw material, cheap energy, for reindustrialization. For example, Shell in 2022 installed a $6 billion methane cracker in Monaca, Pa., to convert the region’s abundant natural gas into plastics.
Antoine van Agtmael and Fred Bakker, authors of The Smartest Places on Earth: Why Rustbelts are the Emerging Hotspots of Global Innovation, see the old industrial belt as the primary beneficiary of a growing interface between manufacturing and technology. Self-driving cars, wearable devices, smart grids, and smart farming all benefit from harvesting a legacy of industrial expertise. For example, Akron, Ohio, successfully reinvented itself from an auto and tire center to a hotbed for polymer research. Other parts of the heartland seem poised to do the same.
Tariffs alone will not bring industry back. After all, Europe and Canada have extensive tariff regimes but continue to lose industrial market share. A concerted drive to reshore requires basic preconditions: the use of new technologies and a better-trained workforce.
New technology and the spread of affordable digital manufacturing tools like 3-D printers enable domestic firms to design, produce, and sell locally, reducing reliance on long supply chains. These technologies allow American firms to produce better and often cheaper products. In many of these dimensions, the United States is leading or regaining the edge.
Finding competent workers will likely prove a more uphill battle. President Joe Biden talked about having factory workers and oil riggers “learn to code” but now artificial intelligence, backed by a huge infusion of Wall Street cash, threatens to wipe out many software jobs. But there is a most pressing need for skilled, dependable workers such as drivers, machine-tool operators, and welders who can do basic industrial tasks. The American Welding Society estimates the shortage of skilled welders exceeds 400,000 nationwide.
Pushing all students into four-year programs is one source of the crisis. Schools made a terrible mistake by no longer offering shop classes. Few were encouraged to learn industrial arts. Now many of the most competent industrial workers are over age 45.
Fortunately, an incipient sea change is slowly lowering the age of skilled workers. Shop classes are making something of a comeback, and some states are investing more in skills education, something that engages less than half as many US workers than in Germany. Much of this is occurring in red states in the Midwest and South. One US senator, Tom Cotton of Arkansas, has even suggested taxing ultra-rich universities, once favored for their production of elite professionals, and using the proceeds to fund an expanded apprenticeship program.
Attitudes are changing. One recent survey found that roughly 83% of Gen Z feel that learning a skilled trade can be a better pathway to economic security than college. That includes 90% of those already holding college degrees. Indeed, as college enrollment dropped between 2020 and 2023, trade schools grew by 10 percent.
To a large extent, these shortages will likely be filled by working-class whites, but also increasingly immigrants and minorities. Today, barely 58% of all working-class Americans are non-Hispanic whites; according to a 2016 Economic Policy Institute study, people of color will constitute the majority of the working class by 2032.
Even in the rural Midwest, long plagued by shrinking workforces, refugees from places like Bhutan and East Africa have become a critical source of workers. In Fargo, ND, employers routinely call resettlement director Dan Hannaher to inquire about new families moving to the region. Seventy percent of one local manufacturer’s staff is composed of first-or second-generation workers from immigrant families, hailing from more than 30 countries. In Texas, according to a number of recent studies, as many as half of all manufacturing workers are foreign-born.
The challenge facing these companies will be to turn these newcomers, and the increasingly detached native-born working class, into effective workers, able to employ the new technologies. Today, the West needs these companies, and workers, to be well-compensated, restoring upward mobility as well as productive growth. These people will prove far more critical to the future of the West than social-media influencers or Wall Street wizards. In the 21st century, reindustrialization offers the best hope for economic renewal and revival of a real social democracy.
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Author: Joel Kotkin
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